October 1999

Israel Update Memo

The following report outlines new developments in the past three months and the state of on-going developments.

1. The Interaction between business and regulatory constraints

The new competitive environment created a very dynamic situation in Israel. Several focuses of conflict developed since the opening of the market and those are described in the background section of the main report.

2. Inventory of the major "public" utilities with a potential for use in I.S. applications

The Palestinian telecom PalTel is carrying out negotiations for the acquisition of rights for the use of the infrastructure being established by the MED-1 company through the undersea cable being lied out in paralled to the coast of Israel. PalTel is interested in accessing the transmission of calls from the Palestinian Authority to Israel through these alternative infrastructure and to restrict the use of the Bezeq lines. The cable is expected to start its commercial operations in middle 2000. PalTel will continue to use Bezeq's infrastructure for the transmission of calls from the coast to the interior of Israel.